In all probability, this would be bond negative, on the theory that it's more of the same until disproven.
At the previous one, there was a clear intimation of no change to the rhythm of issuance.
And the questions posed to primary dealers a few weeks back did not suggest anything big or imminent in terms of change.
Swap spreads are well-behaved.
Better to leave such a policy for a time when there is a material need to tighten swap spreads.
Two things for Treasuries to get their teeth into in the coming days. First, the signals from the midterm elections. Expect this to be an issue for trading on Wednesday, as projections emerge through Tuesday night. The basic market discount is for the Democrats to take the House, and maybe the Senate. The only big surprise would be if the Republicans held on to both, which would be a huge surprise, as it would, in fact, suggest an endorsement from the US electorate for the war, tariffs and the current immigration policy, among other contentious issues that have emboldened the left and caused right-leaning independents to swing left. In all probability, this would be bond negative, on the theory that it's more of the same until disproven. The more probable blue sweep should have little market impact, as it should be broadly discounted.
The second big thing for Wednesday is the refunding announcement. At the previous one, there was a clear intimation of no change to the rhythm of issuance. And the questions posed to primary dealers a few weeks back did not suggest anything big or imminent in terms of change. However, there has been some growing talk of the refunding including a reduction in long-end issuance. More likely, if the Treasury were minded to do so, it would be an indication that it has the flexibility to do so going forward. Either that, or no change to the issuance profile, is probable. We don't think the Treasury needs to panic here by changing tack on issuance. Swap spreads are well-behaved. Better to leave such a policy for a time when there is a material need to tighten swap spreads.
